Don't let it get away!

Last week, I wrote an article called "Bailout: The Sucker Punch," and was pleasantly surprised with the outpouring of comments and emails from passionate people. I enjoyed reading each and every one of them. (Too bad it's under such difficult and frustrating circumstances for so many of us.)

On the other hand, I'm also seeing some arguments defending the bailout in the media and even here around the Fool that -- with all due respect -- I don't agree with. Here are a few examples.

Americans should be angry at those in Congress who, uh, listened to Americans and voted down the bailout bill. Last I heard, in our country the people's will was at least supposed to be taken into account. The implication that taxpaying, voting masses' opinions shouldn't be considered in important decisions is odious to me. I think it's also called an oligarchy.

People who are angry about the bailout just don't understand economics. Actually, I get the impression many people who are against the bailout do realize what's at stake and probably don't see how, for example, putting artificial floors under housing prices has anything to do with supply and demand. And of course, there are the many people (including some economists), who are pointing out that our economy has suffered distortion from the flood of easy credit over the years -- and that must correct itself, despite government attempts to engineer it. I think what many people don't understand is how we've allowed debt-driven, "bizarro-world economics" to fire up our economy for more than a decade.

But our 401(k)s! I am truly sorry for people who need to retire soon and have seen their 401(k)s get hit. However, who said the stock market wasn't risky? There is no such thing as a permanent bull market, as much as human nature might wish there was. Trying to artificially prop up stock prices (for example, banning short selling) makes me wonder if we're just a breath away from shutting down the stock market until it "behaves." That's not how a real market works, folks.

If we profit from the bailout, at least that's some consolation prize for the poor taxpayers. Um, no thanks. I'm not interested in the government investing for me, and certainly not in toxic sludge; when I wrote this article, I made it clear that I had no interest in investing in companies like Lehman Brothers, Merrill Lynch (NYSE: MER) , Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE) . I thought it was a terrible idea even as many people insisted they were "cheap" (and then probably lost their shirts). So I'm a bit offended at the concept of the government obtaining equity stakes in financial companies.

But, again, we might profit. I am a fan of long-term profits, but those that are built prudently and wisely. The idea that "profit" makes just about anything OK reminds me of exactly why we're in trouble to begin with -- short-term thinking that excuses ill-conceived strategies, and confusing speculation with investing. Also ironic: the government doesn't seem too concerned with operating profitably, given its own mind-blowing debt load.

When there's a crisis, sometimes your principles have to go out the window. Um, I'm pretty sure many totalitarian regimes made great strides when people took on that attitude. I think we all need to take a collective breath and slow down, and maybe think about whether our principles can be bought and sold so easily.

I have no plans to sell my stocks or to cash out my 401(k). Actions like that are based in panic, and panic will only make things worse. I am holding on despite the fact that I own shares of three consumer-facing companies -- Starbucks (Nasdaq: SBUX) , Whole Foods Market (Nasdaq: WFMI) , and Urban Outfitters (Nasdaq: URBN) , all of which may suffer in a serious consumer-led recession (and two have been struggling with the slowing consumer climate already). But I believe that all three are good companies with excellent long-term attributes, and even with the potential for hard times to come, investors shouldn't forget to look for great companies whose stock prices have been beaten down in the rubble.

I don't believe the bailout will stop the recession and the inevitable correction from happening. In fact, I believe the bailout may even prolong our problems and make things worse with rising inflation and taxes, not to mention additional debt-driven distortion that many are concerned about (or a major contraction as all that credit tightens, as it eventually must). Still, for the long term, I do believe we will persevere, if we all make the sacrifices we must make. We need to set our sights on saving and creating, instead of debt and consumption -- let's not forget we Americans are innovative, too.

What do you think, though? Feel free to chime in or rebut my rebuttals. I know many people feel passionate about our current situation and what we should or should not do, but one of the greatest things we do have is the freedom to have these conversations.

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The reason this economy has fallen so hard is because of how high it was propped up with popcycle sticks and bubblegum. We can not have an artificially inflated stock market forever. We REALLY need this correction!

As far as this bailout goes, it was crap and it was going to add more popcycle sticks or more collectively chewed gum. Does anybody realize how bad of an idea it is for the Government to own stock in private sector businesses?! That is a screaming conflict of interest. The government should never be permitted to hold stock because the government's actions directly drive the market. Do you really want to be on the opposite end of their portfolio?

This will work, tell those jugheads in DC, this can be and is a plan, give back that 300 bucks, show the White House we, the people know what will work---they have not figured it out yet, only the lobbyist know what will work. Stop the golden windfalls to those jerks on Wall St .

Only problem is, not one elected representative will reply or act on any email. You may get a nice reply back from some underpaid gov't staffer, but you will never hear from the elected person.

Subject: $85 Billion

I'm against the $85,000,000,000.00 bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 to America in

a We Deserve It Dividend.

To make the math simple, let's assume there are 200,000,000

bonafide U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman

and child. So 200,000,000 might be a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billon that equals $425,000.00.

My plan is to give $425,0 00 to every person 18+ as a

We Deserve It Dividend.

Of course, it would NOT be tax free.

So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes.

That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket.

A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?

Pay off your mortgage - housing crisis solved.

Repay college loans - what a great boost to new grads

Put away money for college - it'll be there

Save in a bank - create money to loan to entrepreneurs.

Buy a new car - create jobs

Invest in the market - capital drives growth

Pay for your parent's medical insurance - health care improves

Enable Deadbeat Dads to come clean or else

Remember this is for every adult U S Citizen 18+ including the folks

who lost their jobs at Lehman Brothers and every other company

that is cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of trickling out

a puny $1000.00 economic incentive that is being proposed by one of our candidates for President.

If we're going to do an $85 billion bailout, let's bail out every adult US Citizen 18+!

As for AIG - liquidate it.

Sell off its parts.

Let American General go back to being American General.

Sell off the real estate.

Let the private sector bargain hunters cut it up and clean it up.

Here's my rationale. We deserve it and AIG doesn't.

Sure it's a crazy idea that can work.

But can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion

We Deserve It Dividend more than the geniuses at AIG or in Washington DC .

And remember, The Family plan really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

Indeed, no one can tamper with laws of reality, not even Pres Bush + Hanky Panky Paulson + Ben the Helicopter Bernanke + the combined windbags in Congress. Fundamentals triumph. (I could add more cliches but they are all true.)

No bailout. Let the chips fall where they may. If we have a great depression, hey maybe the government will start some public works projects and actually rebuild the country's crumbling infrastructure and manufacturing base, instead of playing with paper money like derivatives.

"But our 401(k)s! I am truly sorry for people who need to retire soon and have seen their 401(k)s get hit. However, who said the stock market wasn't risky? There is no such thing as a permanent bull market, as much as human nature might wish there was. Trying to artificially prop up stock prices (for example, banning short selling) makes me wonder if we're just a breath away from shutting down the stock market until it "behaves." That's not how a real market works, folks."

Here's the problem. Frequently the same people who are making this argument are the same ones who made the argument that people should be responsible for their own retirements and should be grateful for the high returns of the market.

So now the market has cratered and workers are left unable to retire... and they're essentially being told "sucks to be you for investing in the stock market".

Me, I have a little portfolio with everything rated pretty high by CAPS. Lost about a third of its value so far this year. I look at Berkshire Hathaway's price dropping steadily. Pretty sure they're smarter than me.

Free markets only can work if they're honest. When even the crooks can't figure out which set of books is more or less accurate, maybe honest people should stay out of the markets.

Also, Google Farrah Gray and Frank Raines, and Ronald Branch and Frank Raines for more links between them. I believe the evidence I am collecting shows that Frank Raines was funneling the Fannie and Freddie foreclosures to this group to list for resale. I talked to a broker who worked there briefly. He heard their names mentioned, but more importantly; the commissions paid to the 'brokerage' were maybe 3% of the sales price, but the sales person or selling broker only got maybe $1,500 or less. The brokerage was then funneling the money back to the owner/investors. There is a shell company in the middle, but I am picking up ties to Raines all along the path. One thing I am, is persistent.

Don't vote yes on this bill today, Senator Ensign. There is a tie between Frank Raines and this company, and it will blow up this topic shortly. Any one of our politicians who votes yes to this rescue bill today is going to look as though they didn't look hard enough at the details before they voted. You can't vote on this without knowing the facts. You need to say that you are not voting for a 700 Billion dollar or more bill to taxpayers without all the information.

Also, I talked to a broker who was working there. He said that basically, this gave Freddie and Fannie execs a reason to foreclose, secretly. They made more money this way, taking these houses back and selling them via these shell brokerage groups; rather than working with any borrowers.

This bail out bill profits these lenders even more. Many were complicit. I've had the misfortune of looking some of these people in the eye across the negotiating table in the last few years. They did this on purpose. I can promise you, my tax dollars won't pay for this. I don't care if I have to cut my income by 50%, because it'll only mean a reduced net of 10%, I pay so much in taxes. But, at least I know I'm not working to pay off their FRAUD. I can get a home loan today, my kid just got student loans 30 days ago, and this is a lie about the credit crisis. If someone is creditworthy, can show the ability to financially handle the repayment, and has a downpayment, they can borrow. I'm not handing anyone a fresh shovel; least of all the people who got us into this in the first place. And, Main Street has been paying for this for two years. We've already figured out how to live beneath our means, save, not use credit, and survive. I'm not buying that these poor, poor fraudsters need me to give them $700 billion.

Alyce - Please allow me as a "not very smart when it comes to economics" person over 60 to share my views on the 6 examples you put forth in your article.

1. Actually, I think it's called a republic (or representative democracy). That's a political system where we elect representatives who are suposedly clear headed and smart enough to stand up to the mob when it is in the national interest to do so. The reckoning comes on election day if their decisions turn out to be the wrong ones. Unfortunately, when election day is just around the corner, it requires a great deal of courage to stand up to the mob.

2. I don't understand economics, but I understand history, and I see some parallels to what was happenning back in the 1920's. Can anyone, in fact, explain to me the difference between "good" economic times and "bad"? It's the same country, the same people, and the same businesses. Do all business suddenly collectively start making dumb decisions to kick off a "bad" cycle and then, just as suddenly, start making smart decisions to turn it back around? I believe that these cycles have been occuring for much longer than just the current decade. My uneducated observations of the economy over the years has led me to conclude that perception far outweighs reality and that perception actually becomes reality. If consumers feel good about the economy, they consume, and if investors feel good about the economy, they invest. But, if consumers and investors feel bad about the economy, they pull back possibly resulting in recession which makes them feel even worse causing them to pull back further and the negative feedback causes a downward spiral that may further degenerate into panic. And for real trouble.

3. I appreciate your sympathy for those of us who need (or may be forced) to retire soon. As for myself, I have no desire to retire in the next 5 - 10 years, but if the small company I work for is forced out of business, I suspect that age discrimination will prevent my finding work in my field. It's not a matter of "risky" investments, most of my inadequate savings are in "safer" money market funds and bank CD's. But history tells us that even these could be wiped out in an economic collapse. Where else can we keep our money, under the mattress? As Terrak correctly points out, the so-called "experts" have been advising us for years that the only way to ensure a comfortable retirement was to invest in the "markets".

4 & 5. I was thinking that maybe the government could just evenly distribute the $700 billion to each citizen (or should it be each resident, legal or otherwise?), but I doubt that $2300 dollars would help me all that much. Then I thought, how about if each of us donated $2300 towards the bailout thus avoiding further debt? But, there probably aren't very many of us who could raise a couple of thousand short of charging it to their credit cards which would defeat the purpose.

6. I'm not really sure that this issue is all a matter of principles. I don't think you refuse to rescue the victims of a traffic accident because it was caused by a drunkdriver. I admire your willingness to "go down with the ship", but you can't eat principles and they won't pay the mortgage.

Alyce, great points, all of them. Its so frustrating that our Congress does not listen to the USA taxpayer. Well, we can take care of that in November. In the meantime, why is there such a rush by Congress to get this bill passed now. $800 billion dollars is alot of money, I wouldn't be in such a rush to spend it. If it were me, I would want to consult just about every economist on this planet to make sure I had a good plan. Senator Clinton's webpage (NY) says she's favoring the bill because so many of her constituents with small businesses can't get credit they need to run their businesses. This credit denial is from banks who are not in trouble, just denying credit for what reason? And can someone tell me please how Congress is allowed to tag onto a bill which was initiated as an amendment to the Employee Retire Income Security Act of 1974 to secure retirement funds for the mentally handicapped a nearly $800 billion economic bailout clause? And another question, if a bill is passed that the majority of the American public is against, is there a mechanism by which the citizens can get the bill rescinded?

Years of bad decisions and stupid mistakes have created an economic nightmare in this country, but $700 billion in new debt is not the answer. As a tax-paying American citizen, I will not support any congressperson who votes to implement such a policy. Instead, I submit the following three steps:

Common Sense Plan.

I. INSURANCE

A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.

B. In order for a company to accept the government-backed insurance, they must do two things:

1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.

a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.

b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while

working with the borrower—again limiting foreclosures and ruined lives.

2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.

C. This backstop will cost less than $50 billion—a small fraction of the current proposal.

II. MARK TO MARKET

A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.

B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.

III. CAPITAL GAINS TAX

A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.

B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to stand up, speak out, and fix this mess.

As low to average income wage-earners, my husband and I have been SAVING to buy a house for 5 years. We also never get a loan to buy a car, we SAVE to buy a used one. We don't charge more on our credit cards than we can pay off each month.

Is there something wrong with this plan?

We saw the hype and falsehoods and housing bubble growing and held back. (Been renting for ten years)

We need the housing market to come down more so we can afford to buy a modest house that we can truly afford.

Let the credit markets crash. Weed out the foolish risk-takers. Our country will survive and come out better.

PS. Heard a number of bank CEOs on CNBC say they are making loans, haven't changed their conservative lending policies, and are doing business as usual!!!

Talking about retirees--I "retired" from Citibank/group last April because I was laid off from my tech job. I did a good job for 25 years but was suddenly of no use to them. Coincidentally they had some cheap Indian contractors to replace me and my entire team lurking in the shadows.

Anyway, I am blessed to have a pension, even if my family can't live on it (unless I give up our health insurance). But I think that as a general rule those who recently retired, whether forced or not, are the worst off for bad timing, because we don't have the choice of postponing retirement--we're in it. And our nest eggs are scrambled at the beginning of retirement before they have a chance to grow.

Hopefully Walmart has a job for me.

I don't mean we are worse off than the folks with baloon mortgages and variable rate mortgages who were swindled because of their vulnerability.

I can't get my head around this situation. Where did the money go? Financial institutions were making a fortune with these "subprime" loans, bundling them and selling them to investors. Brokers made fortunes. So where in the economy is this money now? Is it all invested in diamonds buried in treasure chests owned by the huge herd of global millionaires? I understand the investors going broke, but were the financial institutions that sold this trash so stupid that they bought it themselves? I'm sure I'm missing something here.

I would like to know how much of the bailout it going for executive compensation. These morons put us in this position by implementing bad lending policies. My wife, who used to underwrite mortgages, saw this mess coming years ago. They were lending hundreds of thousands of dollars to people that you or I wouldn't lend a cup of sugar to. Where was the oversight? The banks dropped the ball by buying bundles of bad loans. Did they not know what they were looking at? I think executives are grossly overpaid. After all, they are still an employee of the business. They are not worth 10 times or more than any other employee in that business. Every employee is important or there would not be a person there to do the job. I just get the feeling that we the taxpayers are funding some Fat Cat's compensation package.

I'm not sure whether I was for or against the bailout. Alyce makes some excellent points. However, I have "the solution". It's very simple. TERM LIMITS. I think if you trace back the problems associated with the community reinvestment act (CRA) moving forward, no right-minded person would consider giving loans to people who can't pay them...unless of course it bolstered their reelection chances. If reelection was out of the question due to term limits, I think our representatives would act more...um...."representative". Term Limits do affect our 1st amendment rights of free speech, unfortunately....but I"m willing to sacrifice them just a little bit to get our country back on track. The founding fathers never really envisioned the concept of a "career politician".

Basically we're paying the price of the excessive liquidity of the Greenspan years which produced first a stock market bubble ('99) and now a housing bubble. The recklessness on Wall Street (insane leverage on junk mortgages with credit default swap ensuring that when one goes down they all go down) just exacerbated the problem but when times were good they just raked it in - fully 1/3 of *all* corporate profits in 2006 were from the financial sector so we're going through a normal correction.

There is cash on the sidelines, waiting to come in, but no one's going to invest when they could get undercut by the "free" cash from government.

After the failure of California-based IndyMac Bank, many people have wondered how safe their accounts really are. It seems that banks all over the country is falling. That's why the government created the $750 billion TARP program to bailout troubled financial institutions in order to stave off a possible depression. This is like how getting a payday loan in order to hold you over until your next payday can also stave off a possible depression. A string of catastrophic bank failures would just make things worse, but it seems hard to justify giving the banks funds after they use those funds to give out corporate bonuses and buy corporate jets. You don't see people doing this with a <a href="http://personalmoneystore.com/moneyblog/2009/02/09/banks-bai... loan</a> now, do you?

Sending report...

Alyce Lomax is a columnist for Fool.com and an analyst for Motley Fool One. She specializes in environmental, social, and governance investing topics, and from November 2010 through June 2015, she managed the real-money Prosocial Portfolio, which integrated socially responsible investing factors into stock analysis. Follow @AlyceLomax